Correlation Between PetroChina and Fuda Alloy

Can any of the company-specific risk be diversified away by investing in both PetroChina and Fuda Alloy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining PetroChina and Fuda Alloy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PetroChina Co Ltd and Fuda Alloy Materials, you can compare the effects of market volatilities on PetroChina and Fuda Alloy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in PetroChina with a short position of Fuda Alloy. Check out your portfolio center. Please also check ongoing floating volatility patterns of PetroChina and Fuda Alloy.

Diversification Opportunities for PetroChina and Fuda Alloy

-0.45

Correlation Coefficient

PetroChina  Fuda Alloy

Very good diversification

The 3 months correlation between PetroChina and Fuda is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding PetroChina Co Ltd and Fuda Alloy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuda Alloy Materials and PetroChina is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on PetroChina Co Ltd are associated (or correlated) with Fuda Alloy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuda Alloy Materials has no effect on the direction of PetroChina i.e., PetroChina and Fuda Alloy go up and down completely randomly.

Pair Corralation between PetroChina and Fuda Alloy

Assuming the 90 days trading horizon PetroChina Co Ltd is expected to under-perform the Fuda Alloy. But the stock apears to be less risky and, when comparing its historical volatility, PetroChina Co Ltd is 2.08 times less risky than Fuda Alloy. The stock trades about -0.02 of its potential returns per unit of risk. The Fuda Alloy Materials is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,331  in Fuda Alloy Materials on December 2, 2024 and sell it today you would earn a total of  95.00  from holding Fuda Alloy Materials or generate 7.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

PetroChina Co Ltd  vs.  Fuda Alloy Materials

PetroChina

Risk-Adjusted Performance

Very Weak

Over the last 90 days PetroChina Co Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PetroChina is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fuda Alloy Materials

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fuda Alloy Materials are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fuda Alloy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with PetroChina and Fuda Alloy

The main advantage of trading using opposite PetroChina and Fuda Alloy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PetroChina position performs unexpectedly, Fuda Alloy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Fuda Alloy will offset losses from the drop in Fuda Alloy's long position.

The idea behind PetroChina Co Ltd and Fuda Alloy Materials pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.